Monday, November 30, 2015

Verisign is the industry leader in domain name registration,
with over 120 million registrations in the <.com> and <.net> space.
XYZ entered the market in 2014 offering registrations in the <.xyz>
space. Verisign alleged false advertising in 1) statements regarding
<.com> availability; 2) non-public statements about XYZ’s revenue; 3)
statements about XYZ’s registration numbers; and 4) statements about XYZ’s
marketing budget.

In an NPR interview, XYZ representative Negari said “[a]ll the
good real estate is taken. The only thing that is left is something with a dash
or maybe three dashes, and a couple numbers in it. Did you know that 99% of all
registrar searches today result in a ‘domain taken’ page? [O]n average, nine
out of - nine out of ten .com searches show up as unavailable.”Further, NPR described XYZ as the next <.com>.
In a YouTube video, XYZ claimed, “MoveOver.com--.xyz is for the next generation
of the internet.” The video showed a dirty old Honda with a license plate that
read <.com>, next to a shiny new Audi with a license plate that read
<.xyz>. The narrator continued, “with over 120 million dot corns
registered today, it’s impossible to find the domain name that you want. It’s
2014 and the next generation of domain names is here.”

As for statements about revenue, made between Negari and
business partners and between XYZ employees and media consultants, Verisign
challenged, “[m]y company has received 775,000+ registrations and ... generated
over $5 million in revenue ...”; “[w]e’ve sold over 600,000 domains just in the
four months that we’ve been live”; “[w]e’ve sold about 800,000 dot XYZ domain
names since we’ve launched...”; and “[o]ur wholesale price is around $8.”Further, in e-mail and blog posts, XYZ
allegedly falsely claimed to be the top-selling new Top-Level Domain (‘TLD‘) at
various times, misrepresenting the number of registrations and confusing
consumers into thinking free-trial domain names were actually sold at a
wholesale price.While XYZ claimed that
“[t]he .xyz registry has put a multi-million dollar awareness campaign in place
to educate users on what .xyz is...,” Verisign contended that, in fact, XYZ’s marketing
budget consisted primarily exchangin domain names for advertising credit.

First, the statement that “all the good real estate is
taken” was nonactionable opinion, not a verifiable fact. NPR did in fact
describe XYZ as the next <.com>, so XYZ reporting that fact in
advertising wasn’t a false statement. Moreover, Verisign’s own data showed that
<.com> names are largely unavailable. In a given month, Verisign received
about two billion requests to register <.com> domain names, yet fewer
than three million are actually registered, mostly because the requested names
were unavailable. Likewise, the YouTube video was puffery and opinion. “The
message communicates Defendants’ opinion of itself as a shiny new sports car
and nothing more.”

The statements about XYZ’s revenue and registrations were
factual statements that were verifiable, but there was no evidence of
falsity.XYZ made a deal with Web.com in
which Web.com purchased 375,000 domain names for a price of $8 each: $3
million. XYZ bought advertising from Web.com in the form of 1,000 impressions
for $10 each, also for a total of $3 million, so Web.com paid with advertising
credit, and gave the .xyz domain names away as free trials to their
subscribers. An independent audit by a reputable accounting firm found that
this exchange was for fair value. The court thus found that the statements
regarding the Defendants’ revenue, registration numbers, and marketing budget were
true.Likewise, when XYZ claimed to be a
market leader in new TLDs, it told the truth.

Furthermore, the court found that Verisign failed to show
materiality.Even had Verisign shown an intent
to deceive the receiving audience, that wasn’t enough to show actual deception.
Verisign’s survey tested whether consumers thought that .xyz domain name
registrations were purchases, but that didn’t itself show deception.

Verisign also failed to show a causal connection between the
alleged false statements and its claimed economic damages. Dot-com
registrations actually increased after XYZ’s statements, although they
coincided with a decline in .net registrations.But correlation isn’t causation, and Verisign’s expert “failed to
account for the over 700 competitors in the <.net> space during the same
time period, failed to account for the decline in Plaintiff’s <.net>
sales prior to Defendants’ statements, and failed to account for changes in
Plaintiff’s own advertising and promotion.”These were fatal flaws.

As for alleged harm
to goodwill, that couldn’t lead to a presumption of irreparable harm, given eBay and Winter, though the Fourth Circuit hasn’t (yet) so decided.Verisign didn’t show evidence of economic or
reputational harm, and thus there was no irreparable harm.

The parties entered into a nondisclosure agreement in
connection with a potential acquisition by Pinnacle.Pinnacle agreed that it would, among other
things, refrain from directly or indirectly soliciting for employment any
employee of Display Works for two years. Display Works alleged that Pinnacle
breached the agreement by hiring multiple employees during the two year period.
Further, Pinnacle allegedly falsely told Display Works’ customers that it was
reorganizing, portraying it as bankrupt or financially distressed in an attempt
to lure customers away.

The court found that “hiring multiple employees of plaintiff
during the prohibition period,” does not, in and of itself, constitute a breach
of contract, since the contract didn’t outlaw hiring, only certain types of
solicitation.Its terms explicitly
allowed Pinnacle to hire employees who contacted Pinnacle on their own
initiative; whose employment with Display Works was terminated for at least
three months; or who responded to an advertisement or general solicitation not
directed at employees of Display Works. The complaint failed to allege
solicitation outside those boundaries.

As for Lanham Act false advertising, Pinnacle argued that
the complaint didn’t allege “advertising or promotion,” because the complaint
alleged only that Pinnacle told certain Display Works customers that Display
Works was “reorganizing” to lure them away, and that Pinnacle disseminated
false rumors about Display Works.Informal representations to a competitor’s customers can constitute
“promotion,” depending on the size and structure of the market; further inquiry
was not appropriate on a motion to dismiss.

In Maryland, injurious falsehood requires: (1) a falsehood
which tended to disparage plaintiff’s title to its property, or its quality, or
to its business in general, or some element of its personal affairs; (2) actual
malice or with reckless disregard for the truth; and (3) the falsehood played a
material and substantial part in inducing others not to deal with the plaintiff,
and that as a result the plaintiff suffered special damage. Though Pinnacle
argued that Display Works failed to allege the precise content of the statement
or its context, the court found that the allegations were sufficient to put
Pinnacle on notice. However, the allegations of special damages weren’t pled
with sufficient particularity—Display Works needed to plead either particular
named lost customers or a general diminution of business and extrinsic facts
showing that such special damages were the natural and direct result of the
false publication, so the claim was dismissed.

Kim sued GM for misleadingly advertising EPA estimated
mileage figures and numbers derived from these figures as “actual, expected
mileage under normal, real world driving conditions.” Kim’s 2011 GMC Terrain crossover vehicle was
sold via a brochure, “Going the Extra Mile to Make the Most Out of Every Inch,”
that claimed that the Terrain “has the best highway fuel economy in its class
at 32 highway miles per gallon” and included a chart with the language “UP TO
600 HWY Miles.” Next to this chart was a map outlining a route from Chicago,
past Cleveland and Buffalo, to Rochester, New York (more than 600 miles). And
so on (with “EPA estimated” in fine print).In a 2011 press release, Don Johnson, GM’s Vice President of United
States Sales Operations, was quoted as saying that “[c]ustomers love the
610–mile range that our compact crossovers provide and they get it without
sacrificing capability or style.” GM’s
Chevrolet website for its “Equinox” vehicle also claimed “32 MPG highway and a
highway driving range of up to 600 miles....” The only mention of an “EPA
estimate” was in a footnote in reference to “class-leading highway fuel
economy,” not “32 MPG highway,” and, in order to view the footnote, the user had
to drag the mouse over the text entitled “view additional disclosures” at the
bottom of the web page. Many ads didn’t disclose that the actual real world
mileage “will vary.”

Kim brought the usual California claims. First, the court rejected
GM’s preemption defense.Federal law
provides that “When an average fuel economy standard prescribed under this
chapter is in effect, a State or a political subdivision of a State may not
adopt or enforce a law or regulation related to fuel economy standards or
average fuel economy standards for automobiles covered by an average fuel
economy standard under this chapter.”But “standards” manufacturers must follow are not the same as advertised
fuel economy estimates.

Similarly, federal law preempts any “law or regulation on
disclosure of fuel economy or fuel operating costs for an automobile” that
isn’t identical to federal law about EPA-mandated estimates on the required
label on a car.However, Kim wasn’t
arguing that disclosure of the EPA mileage estimates was, by itself, deceptive.
Instead, the argument was that GM made additional statements that were
misleading, and federal law didn’t address those.Kim was hallenging “GM’s use of the EPA
estimates in a way that may give consumers the mistaken impression that they
are able to achieve real-world mileage and tank range derived from those
figures,” and that wasn’t preempted.

There was also no conflict preemption, despite extensive
federal regulation of EPA estimates.GM
claimed that if “an EPA estimate included in a ‘window sticker’ is not a
‘warranty’ under federal or state law ... then surely any claim that the mere
inclusion of this same estimate in an advertisement is such a guaranty,
warrantyor promise flatly conflicts
with federal law.” Under federal law, car dealers must have a window sticker on
every new vehicle, detailing, among other things, the fuel economy of the
vehicle and estimated annual fuel costs. But nothing in federal law purported to
regulate advertising of fuel economy beyond specific requirements for the
stickers and associated booklets.There
was no reason to think Congress wanted to preempt state regulation of
misleading advertising.

The FTC permits automobile manufacturers “to advertise the
EPA estimates and make the disclosures required by the FTC for that kind of
advertising, or to advertise non-EPA estimates and make the much more onerous
FTC-required disclosures for that kind of advertising.”However, while the FTC regarded the phrase
“EPA estimate(s)” as the “minimum disclosure necessary to comply with [this
regulation]” within all media platforms, the FTC didn’t prevent states from
applying stricter disclosure standards under their false advertising laws.

Two of Kim’s three alleged misrepresentations were nonetheless
insufficient to state a claim.Claims
that GM didn’t adequately disclose the “EPA estimate” or omitted “actual
mileage will vary” were insufficient; GM did nothing more than use footnotes to
comply with federal disclosure rules. The FTC Industry Guide governing fuel
economy advertising specifically states that “inclusion of the phrase ‘EPA
Estimate(s)’ is sufficient without more to comply with the FTC’s regulations.”

However, the third set of misrepresentations was adequately
pled.The alleged 600-mile range was
supplemented with a map showing a 600-mile route, which could lead a reasonable
consumer to believe that she would actually get 600 miles on a single tank of
gas in the real world.These claims went
above and beyond the EPA mandated estimates.“[T]he purpose of EPA fuel economy estimates is to provide a consistent
basis for comparing the fuel economy of competing vehicles relative to each
other, and … such estimates are not designed to determine the actual expected
mileage for a vehicle under ‘real world’ driving conditions.”GM attempted to blur the line between that
and the real world, and this was potentially actionable.

Charlatan and budding fascist Donald Trump failed to get rid
of many consumer protection claims against him and his “Trump University” (now
renamed).Can’t wait to see how he’ll
explain why this means he’s great.

In 2004, Trump helped found Trump University, a private, for
profit entity offering real estate seminars and purporting to teach Mr. Trump’s
“[i]nsider success secrets.” TU shifted to live events in 2007. Consumers were
first invited to a ninety-minute Free Preview, preceded by an orchestrated
marketing campaign:

For example, consumers were sent
“Special Invitation[s] from Donald J. Trump” which included a letter signed by
Mr. Trump that stated “[m]y handpicked instructors and mentors will show you
how to use real estate strategies.” Newspaper advertisements displayed a large
photograph of Mr. Trump, stating “[l]earn from Donald Trump’s handpicked
expert,” and quoted Mr. Trump as saying: “I can turn anyone into a successful real
estate investor, including you.” Similarly, TU’s website displayed large
photographs of Mr. Trump and included statements such as “Learn from the
Master,” “It’s the next best thing to being his Apprentice,” and “Insider
success secrets from Donald Trump.” Further, TU advertisements “utilized
various forms of recognizable signs to appear to be an accredited academic
institution” such as a “school crest that was ubiquitous and used on TU
letterhead, power point presentations, promotional materials and
advertisements.” Plaintiffs have provided evidence that Mr. Trump reviewed and
approved all advertisements.

The free previews began with a promotional video of Trump
saying the things you’d expect Trump to say, minus the racism.E.g., “We’re going to have professors and
adjunct professors that are absolutely terrific. Terrific people, terrific
brains, successful. ... The best. ... we’re going to teach you better than the
business schools are going to teach you and I went to the best business school.”The cost of the next step was $1,495.At that “seminar,” consumers were invited to
sign up for the Trump Elite Program for up to $34,995, which allegedly promised
unlimited mentoring for an entire year.

Named plaintiffs—California, Florida, and New York residents—purchased
and were dissatisfied with TU programs.After
Makaeff initially sued, TU countersued Makaeff for defamation.Claims at issue here: the usual California
claims; financial elder abuse in violation of Cal. Welf. & Inst. Code §
15600 et seq.; deceptive acts and practices in violation of § 349 of New York’s
General Business Law; violation of the Florida Deceptive and Unfair Trade
Practices Act (FDUTPA); and misleading advertisement in violation of Florida’s
Misleading Advertising Law (MAL)/elder abuse.

The court partially certified a class of buyers from the
three relevant states based on certain “core” misrepresentations: “(1) Trump
University was an accredited university; (2) students would be taught by real
estate experts, professors and mentors hand-selected by Mr. Trump; and (3)
students would receive one year of expert support and mentoring.” Subclasses were
divided by state and by age for the elder abuse claims.The class was certified for liability only,
but decertified for damages.The opt-out
period has expired.

The court first found that plaintiffs, who were now aware of
TU’s misrepresentations, lacked Article III standing to seek injunctive relief.Fair warning: Trump testified at his 2012 deposition:
“Do we plan to start [TU] again after this lawsuit is won and after we bring
the lawsuit against your firm. I would say probably yeah.” He also told
reporters that TU was “on hiatus.”

Trump argued that he was entitled to summary judgment because
he did not personally make the alleged “core” misrepresentations to the class
representatives, nor did the class representatives rely on misrepresentations
made by him. He also argued that the representation that he “hand-picked” TU
instructors was true.

Trump stated in interrogatory responses and deposition
testimony that he “attended periodic meetings with various experts responsible
for drafting and developing Trump University course materials” and that he saw
resumes of instructors. However, though
he said he was personally involved in the selection of four people who
developed TU course materials, he also stated that “most if not all speakers,
instructors and mentors were selected by Trump University representatives ....”
Several instructors testified that they never met with Trump. There was a
genuine dispute of material fact as to whether the representation that students
would be taught by real estate experts, professors and mentors “hand-picked” by
Mr. Trump was true.

Trump also argued that he wasn’t liable for restitution
because the plaintiffs paid money to TU, not to him directly. However liability
under the UCL and FAL “ ‘may be imposed against those who aid and abet the
violation,’ ” there was a genuine issue of fact about Trump’s personal
participation: (1) Trump was the founder and Chairman of TU, and authorized TU
to use his name, photos, and quotes for all TU seminars and presentations; (2)
TU’s materials all prominently feature Mr. Trump’s quotes, image, logo, and
signature; (3) Trump reviewed and authorized advertisements; (4) Trump
personally financed TU and reviewed financials; and (5) Trump represented that
he hand-picked the TU instructors and mentors. Trump’s weak response that he
didn’t control the day-to-day operations of TU was insufficient to win summary
judgment, given his involvement in the alleged core misrepresentations.

Similar challenges to Trump’s direct responsibility for the
named plaintiffs’ enrollment also failed.True, they didn’t talk to Trump directly.But, for example, Makaeff saw slides with
statements by Trump, including that “[t]his is the next best thing to being my
apprentice,” “[y]ou’ll learn inside secrets from me,” and “he was going to
provide his hand-picked instructors.” Makaeff
testified that it was important to her that Mr. Trump would hand-pick the
instructors because “that’s a promise he made, and I would think that he would
have the ability to pick the best people since that’s his expertise.” Likewise, plaintiff Low testified that he
received a letter signed by Trump which included the statement that “[m]y
handpicked instructors and mentors will show you how to use real estate
strategies,” that the signed letter was the “[n]umber one” reason why Low
decided he wanted to buy a TU program, and that Low “took it as being very significant
that [Mr. Trump] signed it” because “I got that from him.” Low further
testified that he considered all TU communications as coming from Mr. Trump. Under California law, a material
misrepresentation can be actionable even if it wasn’t the sole cause of the
plaintiff’s injury.

Florida plaintiff Everett similarly testified that the
“Trump name, the Trump reputation, the Trump-backed program” played a “huge
role” in and was the “only ... reason” for her decision to purchase TU
programs, and it was important to her that she would be working with Mr.
Trump’s “handpicked” instructors and mentors. She further testified that the
name “University” implies an “educational program” with a “full staff of ...
handpicked experts that understand real estate investing” and she thought it
was “like a real estate school or a special school that has certification and
follows certain guidelines for the state.”Florida and NY claims survived, the NY claims based on similar
testimony.

As for the elder abuse claim, California law defines elder
abuse as occurring when a defendant “[t]akes, secretes, appropriates, obtains,
or retains real or personal property of an elder [65 or over] ... for a
wrongful use or with intent to defraud, or both” or “assists” in doing so. The
statute defines “wrongful use” as if the defendant “knew or should have known
that this conduct is likely to be harmful to the elder ....” Trump argued that he didn’t know how many TU
students were senior citizens and there was no “target market” for TU.But plaintiffs offered evidence that TU ads
could be interpreted, and were interpreted by Low, as targeting seniors, and
that Trump approved all ads. That raised a triable dispute as to whether Trump
“should have known” the conduct was likely to harm elders. The same result
occurred for the Florida elder abuse claims.

This case illustrates that lawyering matters a lot; courts
don’t always know the most recent circuit precedent.Here, the only purported federal claim was false
advertising under the Lanham Act.But
the court found the claim “insubstantial in the sense that ‘prior decisions
inescapably render the claim[ ] frivolous.’” The reason was that “the purported
false statements were made in person-to-person communications to specific
customers, rather than in promotional materials disseminated to anonymous
recipients.” And, in First Health Group Corp. v. BCE Emergis Corp., 269 F.3d
800, 803–04 (7th Cir. 2001), the Seventh Circuit “held” that only the latter
form of communication was “commercial advertising or promotion.” Then, Sanderson
v. Culligan International Co., 415 F.3d 620, 624 (7th Cir. 2005), “described as
frivolous an argument that a person-to-person communication is actionable under
§ 43(a)(1)(B).”

[First Health and Sanderson]
do not hold that “advertising or promotion” is always limited to published or
broadcast materials—an interpretation that would put us at odds with all seven
other federal courts of appeals to have considered the issue. … The cases from
the other circuits are not inconsistent with the holding in Sanderson that
three person-to-person communications at trade shows do not add up to
commercial advertising or promotion or the holding in ISI Int'l that letters
threatening suit for patent infringement are not commercial advertising or
promotion; and in First Health the Lanham Act was held applicable.

A classic advertising campaign is
not the only form of marketing embraced by the statutory term “commercial
advertising or promotion.” Podiatrist Ass'n required merely “some medium or
means through which the defendant disseminated information to a particular
class of consumers.” And the most recent case, LidoChem, explained that “the
required level of dissemination to the relevant purchasing public ‘will vary
according to the specifics of the industry.’ ”

If “advertising or promotion” just
meant “advertising,” then “promotion” would do no work in the statute. More
important (because of the frequency of redundant language in statutes), there
are industries in which promotion—a systematic communicative endeavor to
persuade possible customers to buy the seller's product—takes a form other than
publishing or broadcasting.

KTurbo held that a
“road show” involving multiple presentations to individual customers was
sufficient “advertising or promotion” to trigger the Lanham Act.Without further attention to the allegations
of the complaint, it’s hard to tell whether this is a KTurbo situation. Since the
plaintiff only argued that “advertising or promotion” was a jury question, the
court didn’t have the chance to consider the issue—though I think failure to do
so probably justifies reconsideration, if the allegations are appropriate.

Riverdale makes welded wire mesh for use in marine traps
using a “galvanized after welding” (GAW) process followed by a polyvinyl
chloride (PVC) coating (GAW + PVC). The combination extends the durability and
longevity of the wire mesh in marine environments. A cheaper, less effective
method involves galvanization before welding, which leaves the mesh more prone
to corrosion even if it’s then coated in PVC.Riverdale has extensively educated customers on the difference between
GAW and GBW mesh.

Cavatorta distributes Italian-made wire mesh.Its main focus is on GAW + PVC mesh, used for
making marine traps, but it also makes non-GAW products to serve the fence and
cage industries. Its GAW products were used interchangeably with Riverdale’s by
fishermen and marine trap distributors, and prominently advertised as GAW +
PVC.Its products are sold to companies that
buy rolls of wire mesh and then use the mesh to build marine traps for sale to
fishermen.

Between April of 2014 and May of 2015, the mesh producer
made a significant manufacturing error and produced about three million pounds
of mesh that was GBW, not GAW, but was packaged as GAW (sold under the name
SEAPLAX). When one of Cavatorta’s
customers complained, Cavatorta contacted each of its nine customers.It reached agreements with some of these
customers regarding discounts and other forms of monetary compensation for the
error, and it repossessed much of the mistaken product and transported about
1.5 million pounds to a warehouse. One of its customers, Ketcham, has not yet been
satisfied with Cavatorta’s offers to make him whole, but he knew of the mistake
and wasn’t not using or selling mislabeled product.

Riverdale sued for violation of the Lanham Act, seeking to
require Cavatorta (a) to cease all sales, including any importing of the
falsely labeled Seaplax product [not clear whether the comma after ‘importing’
was deliberately missing, but the court treats it as present]; (b) to avoid
false advertising, including false GAW claims; (c) to recall all the falsely
labeled product; (d) to prominently label [mislabeled] SEAPLAX as GBW; and (e) to
issue corrective advertising.Cavatorta
consented to (a), (b), and (d), but contested the recall and corrective
advertising.

The parties agreed on falsity and materiality; literal
falsity gave a presumption of consumer deception. However, though there could be
no doubt of initial deception, “Cavatorta has since taken significant steps to
remedy any resulting confusion.”It told
all its customers and took custody of all the mislabeled product that its
customers wished to return. “[I]t is in the best interest of Cavatorta’s
customers who received mislabeled product to alert their own customers who may
be affected. Credible testimony was presented during the hearing that the
lobster-fishing industry is a tight-knit community and is generally aware of
the issue through word-of-mouth communication.”Thus, the court was convinced that Cavatorta took sufficient corrective
action to make ongoing confusion unlikely.

Riverdale argued that it was suffering ongoing injury
because it has built its reputation on the superiority of the GAW process:

The lobster fishing season is
currently nearing its end in New England. Riverdale predicts that when the
traps are pulled out of the water and stored for the winter, those made from
GBW mesh will develop blooms of rust. Riverdale further predicts that this will
cause fishermen who thought that their traps were made from GAW mesh—but who
actually received mesh from one of Metallurgica’s failed production runs—to
doubt Riverdale’s claims about the long-lasting nature of the GAW product. In
turn, this will harm the reputation that Riverdale has worked so hard to form.

The court conceded that reputational harm was difficult to
prove, and that an erosion of consumer confidence in a product could take time
to fully develop. Still, the court concluded, this was nothing more than
conjecture, and in fact Riverdale experienced an increase in sales since the
industry became aware of Cavatorta’s mistake. This would be a completely
different case if Cavatorta were still selling mislabeled mesh, but the court
predicted that, on these facts, the industry wouldn’t blame the GAW process, or
Riverdale by association, for any prematurely rusting marine traps. Thus, there
was no likelihood of injury to Riverdale’s reputation.

The status quo had been restored without need for injunctive
relief. Cavatorta’s existing actions were sufficient to protect consumers from
the harm of false advertising.

Friday, November 20, 2015

RT: Stacey Dogan’s statement that as a practical matter we
need justifications for copying/free riding—I didn’t want to believe it, but I’m
coming around to that view.Mark Lemley
says no, all we need to make the trademark system work is protection of consumers,
properly understood.But I don’t think
that’s sustainable in part because there are so many different ways to protect
consumers, so many aspects on which competition might help or hurt them—price,
quality, diversity.Because of the
factual indeterminacy of many consumer protection justifications, we have a
hard time making headway on consumer protection “properly understood.”So, it’s much better to admit that sometimes
we are letting other interests serve as trumps.Not everyone will agree on what’s a useful heuristic for determining
likely trademark meaning or likely confusion; therefore concepts like trademark
use (which implicitly accepts the difficulty and expense of factfinding as a
reason that consumer confusion can’t always be the relevant inquiry) should be
supplemented with other structuring purposes.

[A different point about static efficiency than Bone made: Strong
TM/dilution as producer protection: it struck me how static that language is:
when in fact protecting a producer who already exists is narrowing the choices
of future producers.Maybe we get at
that by talking about competition, not competitors, but is that enough?The static/dynamic tradeoff is better
accepted in copyright and patent; does it have a role in TM?I don’t think TM as incentive makes any sense
(and listening to Europeans talk about it just puzzles me further), but
incentive isn’t the only way to produce dynamic effects.]

What I’m particularly interested in now are the functions
served by the registration system.Registration in a consumer-protection-only world has a very limited and
puzzling role—it isn’t actually a signal of rights or lack of rights.Usual American suspects for
non-confusion-related purposes are free speech and competition/protection of
the utility patent and copyright systems.I would add notice and signalling, a main function of registration—allowing
businesses to order their affairs as among one another. International
trade/extension of protection is a related function of registration.These are different flavors of producer
protection even as there are different flavors of consumer protection.Registration is inside the system, not external as McKenna has said of other
limits; maybe the other limits are internal too.

Things I learned by doing the reading for this discussion:

From the law reviews: Edward Rogers, primary drafter of Lanham
Act: 1909 article.Very interesting that
he didn’t see any problem with granting plaintiffs practical monopolies over
particular products—that’s not his problem.If secondary meaning is shown, he advocates, then no one can use the
term.Trademark is not a consumer
protection device at all in this view.Producer protection, with the consumer as the mechanism by which harm is
done to producers. Note that this didn’t entirely prevail, either in the Lanham
Act then or now—the legislation, like much legislation, represents a series of
compromises in many cases kicking the policy questions that the legislature
couldn’t resolve into the courts, which turn out not to be able to resolve them
either.

See the development of the idea that arbitrary use doesn’t
mean actual monopoly (as with what would come to be called descriptive or
nominative use, but they called non-trademark or non-denominative use),
therefore there is no need to exclude descriptive terms w/secondary meaning
from the category of protectable trademarks and no need for the category of
technical trademarks. Also argued that court should grant relief as far as
possible to the senior user in restricting TM like or large print uses on D’s
goods of descriptive terms w/secondary meaning. Again saw less concern for
competition.

Dilution is a component of this approach: don’t require
confusion when there’s uniqueness—not when there’s technical TMs.

From the cases: NY & R Cement Co v. Coplay Cement Co.,
44 F 277: no cause of action for false advertising of geographic origin b/c of
Pandora’s box—no one can sue for public nuisance w/o specific injury/invasion
of property right.Still an issue
today!Big split, finally resolved by Lexmark,
holding that standing for false advertising requires proximate causation, but
what proximate causation is in a multicompetitor market remains really, really
unclear.Maybe all we can do is shift
the same considerations around in a hydraulic legal system.

Incredibly important to keep talking about harm.It’s problems with confining the concept of
harm that lead us to have to fight about purposes, it seems to me.Classic statement: Yale Elec. Corp. v.
Robertson, 26 F.2d 972 (2d Cir. 1928): “If another uses [the trademark], he
borrows the owner’s reputation, whose quality no longer lies within his own
control. This is an injury, even though the borrower does not tarnish it, or
divert any sales by its use ….” [Compare to debate over whether Congress can
create standing for a party when their injury would not satisfy Article III in
the absence of a statutory right (Spokeo):
this is Hand literally admitting that the only harm is the loss of the legal
right to control.That loss of control
may if it is really true impose other
risks but risks and actual harm are not, we are usually told, the same thing.Back to Felix Cohen’s transcendental
nonsense: the modern conception that the TM owner suffers harm from loss of
control/free riding is a result of allocating the legal right to the TM owner,
but the “property” concept obscures that the exact same dynamics are operating
here as where Congress creates legal rights for consumers.The political implications for a conservative
legal system that recognizes property rights but not other forms of rights as
important and “natural” or prepolitical, even when recognized by the
legislature, are obvious.]

Gordon: TM law is a form of speech regulation with a
property label, which makes it hard to call for recognition of the P’s
interest.And that is political.

Internalization of positive effects: money can come in that
becomes too great/non-incentivizing—super-high salaries.Surprised that the understanding in copyright
is so much more advanced—some commentators seem to think you may have perfect
internalization, but it’s always two people who create any effect.Therefore the allocation of all the benefit
to the TM owner is likely to be unjustified.

Can’t expect perfection in incorporation of various
doctrines.Doctrines don’t have to be
fully protective to be considered by courts—it’s not persuasive to say that “if
courts considered this a value they’d be making different decisions across the
board.” They might have reasons to limit.

Our rights are most stable when different policies converge
to support them. No such convergence in the modern cases.Persuading judges will require greater
clarity on the purposes.

McKenna: at the core, interests of producers and consumers
do converge.You do open up a gap at the
periphery.His reading of Lackawanna
Coal is that the courts were interested in a particular kind of deception—deception
about identity, not about other aspects of the goods. Not surprising that
courts then developed a common law of false advertising that could address
other kinds of deception.

Every type of doctrine will have some things and cases that
don’t fit perfectly.I’m just looking
for a better fit.I think my account
fits more naturally to more of the cases.

Bone: American
Washboard: court’s policy reasons to refuse to allow P to proceed against
falsely advertising competitor, maker of zinc washboards advertised as
aluminum, are not reasons but rhetorical questions.There’s clearly a concern that if we extend
this cause of action to false advertising, we’ll end up with anticompetitive
effects, b/c pure aluminum washboard P could go after others w/perfectly good
products that are only partially aluminum.But what’s wrong with that if they’re advertising falsely?We don’t want courts mucking around in
degrees of aluminum?[Note later
development of materiality/puffery to deal with this.]

Dogan: Political aspect—idea that when people have something
that they’ve invested in developing, or that they inherited, it’s theirs, regardless of the structures
that nurtured it and the contributions others made (keep your hands off my
Medicare!). Even if you accept that, shouldn’t be transferrable to the IP
context.Visceral in many courts’ minds,
and certainly in TM holders’ minds: it’s mine.

Silbey: feeling that it’s mine v. feeling that something is
being taken.When a big Apple store
opens up, the restaurant next door benefits.The restaurant is free riding, but we don’t think that restaurant owes
anything to Apple. But if I trespass on your property, we recognize a harm and
a cause of action even though there’s been no change in wealth.

Dogan: courts intuitively think that “happening” to be next
door is different.

McKenna: but we can give an example where the person just
moves in afterwards to take advantage. Any time there’s a Walgreen’s, there’s a
CVS on the other corner.One of them
does market research and the other free rides on the information about the
local market on which the other relied.There’s no instinct that this was unfair.

Discussion about whether free riding on a trademark can ever occur without the risk of harm. [What if it's not confusing? Then the "bad publicity from bad quality" risk can't materialize.] Students are attracted to the idea that there's always some risk of harm if someone else is using the same mark on the same goods [presumably without further identifying marks].

The role of justifications and equitable considerations in
trademark law:Stacey Dogan

Many of the early cases are limiting protection b/c of some
interest they’re trying to protect on the other side—Borden is an exception.Maybe a public right to use the term—e.g.,
American Washboard.Troubled by recognizing a right in a private
party that would preclude others from truthfully describing their goods.

From Borden to Aunt Jemima: in the latter, the court
says there doesn’t seem to be a reason for the D’s use of the TM—there’s
consumer deception, there’s possible harm to the P, and there’s no reason to
give access to this term w/singular meaning.Concept of justification does help explain case law through early-mid 20th-c.Courts start thinking in terms of likely
confusion—instinctive/intuitive feeling that unexplained/unjustified Ds who are
trying to free ride create a costless case for judicial intervention.That takes us through much of the contemporary
case law as well, even in cases involving counterfeit goods, post-sale
confusion.Courts are moved by a natural
rights feeling that TM owners are entitled to the fruits of their labor unless
the D has some justification.

Courts initially responded to use of keywords in search
engines as “unfair,” using guise of confusion; as courts have been educated
about the value of these uses for competing or complementary products, they
scaled back the scope of TM rights, insisting on a showing of real likely
confusion.Amazon v. MTM; Tiffany v.
eBay; even Rescuecom.Most limits have been imposed in the
expressive use context.Increasingly Rogers v. Grimaldi: very
defendant-protective, and the reason courts do this is that they see the speech
value of allowing people to incorporate TMs into expressive works.

Dogan: Natural experiment? Europe has broad protection for
design; US has less protection for designs that integrate form and
function.Design patent does protect
design, but much design developed in last ½ of 20th century is no
longer protected if it ever was. Lots of furniture still under protection in
Europe but not here—someone should do empirical work to figure out effects on
product diversity, price spectrum.Recent
injunction against generic manufacturer of a drug that just went off patent—a purple
pill, and the plaintiff/brand owner sued when the generic manufacturer used the
same color, and got a PI.There has been
some work done suggesting that old people in particular really rely on pill
color.Compliance w/drug regimen
declines if people aren’t allowed to use pills.[McKenna interjects that it also supports drug effectiveness.]To the extent that we can harness evidence
like this and present it to courts, they might be more persuaded about the
costs associated with recognizing rights.

Bone: Dogan is describing sort of a presumption of
protection; he would say today’s TM is about worrying about risk.Smack
Apparel: the D had justifications, they were just ignored.[So basically TM owners and the courts that
enable them are as lily-livered as Donald Trump and his ilk’s fear of
refugees.]P had an established
licensing market, and if that were impaired, who knows what would happen?
Erring on the side of the TM owner.Same
w/prestige goods—court isn’t going to say that signalling status through purchases
is wrong.If the Ferrari gets too
plentiful, then prestige plummets, and we don’t want that risk. Tarnishment/dilution
is the same.

Dogan: these aren’t unrelated.Tarnishment is distinct because while she
doesn’t like it, there is a theoretical harm narrative there [just one whose
mechanism violates the First Amendment, NBD].

McKenna: courts are relying more on justifications, but the
problem is that courts don’t uniformly accept those justifications—they don’t
buy the argument for competition in luxury markets. They buy the harm argument
that P will lose customers who want snob appeal. You need justifications, but
you also need to know when justifications will trump the harm story, and courts
ever expand their willingness to accept ever more fanciful harm stories.We don’t need to figure out what TM law was
once about to make TM law now, but the reason he wrote was that the dominant
discourse was that TM law was about search costs and we should get rid of
doctrines that don’t further that.Courts don’t think they’re doing search costs so they won’t be
responsive to those arguments.Bone/McKenna dispute is a conclusive argument against originalism, but
agreeing w/him isn’t key—wants to convince people to take on the harm story on
its own terms rather than just say cts aren’t doing what they’re supposed to
do. And you can’t do that if you say the doctrine has abandoned its old
consumer protection rules.There is both
continuity and a radical shift.

Gordon: remember that Holmes reminds us that just b/c
something has value doesn’t mean that it should be property; and there are
complicated questions about courts v. legislatures.

McKenna: note that 1-800
(10th Cir.) channels its concerns through the harm story—it doesn’t
say “keyword ads are good so this is ok” it says no one is clicking on these
ads and therefore there’s no confusion/no harm.

Dogan: what is it that TM law ought to do?Unrealistic to
go back to trade diversion.

Silbey: Take seriously the idea that consumers are harmed
when they get the wrong thing.

Dogan: Materiality!

Silbey: better explanation for why mistake is a problem when
we buy.Take the idea of impersonation seriously—is that
a consumer interest apart from market balance issues, if the consumer is
otherwise satisfied.

Gordon: should the P have to show that the D is making
something whose purchased by a confused consumer would hurt the consumer in
some relevant way?Hand says TM owner
shouldn’t have to be at risk, have to wait for bad quality to materialize, but
over time Hand began to think that was too generous for Ps.Sees the point of allowing P to vindicate
rights before the harm materializes, once you accept the theory that if it materializes it will do P harm.

Dogan: there’s also a consumer autonomy interest in
preventing a purchase that is caused by
deception.

Bone: Autonomy is a description of information/choices. Why
do we care? Maybe b/c it makes market work better—allocative efficiency.We might care if consumers have the right to
perfect information, but that’s impossible.Third reason: more to do with enforcement costs—ideally, we wouldn’t
give protection where products are of equal quality, but broader rule has fewer
error and enforcement costs.

RT: Autonomy is more than a descriptive term.

Silbey: early cases focus on manufacturer autonomy.The taking of the name is a harm in itself,
and I don’t understand that for the reasons Bone articulates for dismissing
consumer autonomy standing alone.[That
is, it can either be market based or rights-based, and neither work well.]

McKenna: we can sweep consumer autonomy under the rug if you
focus on lost sales/harm to TM owner.Also, quality concerns: you have to start thinking about what the
components of quality are—conditions of production.There’s no a lot of real diving into where
real consumer autonomy is.

Dogan: Ferrari case is an example where the harm story is
not really doing the work—it’s about free riding, and the court sees no social
value in this form of copying.

McKenna: features of TM promote informational clouding, not
clarity.For example, Clorox is no
different from other bleach (Posner thinks there’s more of a guarantee that it
won’t explode but nobody else thinks this—people buy Clorox because that’s what
they’ve always done).It’s also easy for
TM owners to obscure true ownership of company.It’s easy to change a TM to disguise your identity.If goal were info clarity, TM law would restrict
these things.

McKenna: mismatch exists though. Comparative advertising can
reach particular components. But you can’t get the limits of TM law from “it’s
about promoting the flow of information” b/c then you need to know why it’s
about this kind of information rather than others and why it doesn’t cover
other uses involving a TM (e.g., your health insurer’s use of a TM with its
incomprehensible disclosures).

Gordon: Social welfare v. formalists.Formalists would say you have a right b/c you
have a right.Consequentialism asks why
these people have these rights in these conditions.Law & economics answer: usually starts
w/sharp distinction b/t distribution and allocation.Distribution = who is richer & poorer.
Allocation = how is a particular resource being used. We seem to usually make
policy arguments in TM that say let us give rights to people who will use them
in a way that gets resources to higher-valued uses.That’s allocation, but we also worry about
the distributional aspect.So we tend to
react to changed circumstances—we thought copying facts was great—with changed
law—1918, SCt says that problems w/news services justify new allocation.And yet: We don’t want people who have vested
rights to suddenly lose what they have simply b/c they’re not economically
useful.We have a few ways of protecting
that. One is the takings clause.The
other is the gradualism w/which law operates.

One difficulty w/TM is that we can see distributions being
made w/out any allocational justification, b/c we assume that past allocations
had some social welfare justification.New prestige goods/merchandising rights etc. evolve w/o any clear sense
of why it helps society. Its recency makes it hard to credit the distributional
claims made for it.Similar w/publicity
rights.

Bone: Another piece is that we’re starting to enlist TM law
for dynamic efficiency purposes, which is a new thing.Some people are concerned about incentives in
a dynamic way—merchandising rights. Goes beyond incentives to maintain product
quality.

Dogan: In an unexamined way—implicit in the opinions rather
than explicit and examined and challenged.

Meurer: Merchandising rights might be justified by claiming
that sports teams capturing more rents leads to bigger stadiums, bigger payouts
to players (I’m sure they’ll start building their own stadiums any day
now).Maybe more plausible w/r/t George
Lucas and the next Star Wars
movie.Affects incentives about which
kinds of movies to invest in.

Many economists think the more ads, the better, b/c ads are
typically informative. Strong protection for goodwill might induce more
investment in advertising, which is better for society. If you think ads are
bad you’d reach an opposite conclusion.

IP Conversations:Trademark Law’s Fundamental Purposes, Boston University School of Law

The debate over normative foundations:Mark McKenna: up until the 1920s-40s, courts
uniformly understood that unfair competition was about trade diversion,
illegitimately getting business that should have gone to someone else.
Structuring competitive relationship between commercial actors.Case from 1871: in all cases, invariably held
that essence of wrong is sale of goods as those of another.Direct competition was required; source
confusion was required, not something like affiliation confusion.

Difference b/t TM and unfair competition in this light,
oversimplified, was about being attentive to the fact that attempts to divert
trade by competitors is the definition of competition: unfair competition had
to be distinguished from competition.Focus on deception allowed these distinctions. Where P’s mark didn’t indicate anything about
the goods, no plausible explanation of use of same mark for same goods, so
illegitimacy could be presumed.“Trademarks”
or “technical trademarks”—no separate need to prove intent to pass off. But
other designations, like geographic references, descriptive terms, trade dress:
more ambiguous, could be used in deceptive or nondeceptive ways, and courts dug
into the use more deeply: that was the law of unfair competition.Initially had to show intent to pass off/rule
out legitimate explanation.

Confusion of consumers was not itself enough to intervene—these
courts weren’t unclear about why they denied relief.Deception wasn’t enough; if you couldn’t show
that deception was going to divert your
customers, or if you couldn’t show that it wasn’t deception that diverted your customers, then you lost—American Washboard, false use of “aluminum”
wasn’t actionable even though consumers might well be confused.Fraud on the public isn’t enough; incidental
effect of protecting P’s property right is to protect the public.Consumers might have their own claims, or the
gov’t might intervene on behalf of consumers to protect them.

Natural rights reasoning shifted to legal realism; also the
commercial marketplace changed compared to the 19th century—geographic
and product markets expanded.Modern
branding put pressure on courts maintaining their notion of harm.The earlier courts clearly understood and
ruled out claims involving noncompeting goods.Also, they didn’t encounter noncompeting goods cases very often because
companies didn’t often offer multiple products.Later courts didn’t want to stop there, not because of harm to the
consumer but because of more recognition of harms to producers.Bone documents the rise of the previously
unneccessary likelihood of confusion factors—weren’t needed in a world where TM
is about direct competition, and the only question is whether there’s
sufficient similarity.When courts
started considering other harms, they were thinking of harms to producers—market
foreclosure, reputational harm.

Radical shift therefore is not that they started caring more
about mark owners than they used to—the Progressive era didn’t care more about
producers than the Lochner era courts
did.But that means the law hasn’t recognized many
limits—confusion itself is the harm, rather than confusion being a predicate to
some other harm.That has proven
infinitely pliable to mark owners. Often they don’t have to be pinned down
about the consequence of that confusion.Paying more attention to harm = progress.Also limiting principles from outside:
interference w/patent, copyright.Increasingly necessary because there are no internal limits.Doesn’t think we should go all the way back
to trade diversion, but there has to be something in between.

Robert Bone: Interpretive exercise: what did the late 19th
century/early 20th century courts think they were doing?Distinguish 2 questions: (1) Why do we
condemn certain practices as TM infringement/unfair competition. (2) What are
the requirements for a private right of action.Some judges during this period separated these questions—we might call
(2) today standing.Guard against
anachronism.We are policy analysts, but
they didn’t think of themselves that way.

His interpretation of the history: One reason for (1):
protect sellers from harm to reputation, loss of sales.Another reason, equally important: to protect
purchasing public from fraud—not prioritized behind protecting sellers. Why protect reputation?Labor/desert.Consumers?Morality, and
promoting market competition, both.

McKenna recognizes both purposes but wants to prioritize
seller protection; Bone doesn’t see that.Canal Co. v. Clark: no secondary meaning = no injury from appropriation;
nor can the public be deceived—no need to say the second thing if only the
first mattered.[I myself think that
courts do the “have your cake and eat it too” thing all the time.]

Common law was natural law—TM was property right.McKenna and Bone disagree—McKenna sees it as
a right to customer flow/patronage, w/harm being trade diversion.Bone sees it as a right to goodwill as
property. Trade diversion isn’t at the core of unfair competition, but rather
appropriation of/injury to reputation/goodwill.Goodwill is the thing drawing customers, not the customers
themselves.He doesn’t want to accept
that taking customers away could, even at the beginning of the analysis, impair
a property right.More importantly,
McKenna’s focus on deception doesn’t come from the nature of these rights. It’s
superimposed on the right to customer flow. But why deception, if it doesn’t
follow from the nature of the right?Because of public harm.Bone’s
approach derives the deception limitation from the right itself: the goodwill
of the 19th c. is the goodwill of the product sold by the
seller.The way you take that goodwill
is by representing yourself to be the seller.

McKenna’s concerns go to (2)/standing—Bone doesn’t think
answers to (2) tell us enough about (1).Aluminum Washboard court finds
no private right of action, even though there’s trade diversion.If you didn’t buy an aluminum washboard from
P, you had to buy one (marked as such) from D.No property right, so no cause of action, not that there’s no fraud.Fear of vexatious litigation.FTC doesn’t change the name of the thing it
can pursue—unfair competition. If trade diversion were the essence, we wouldn’t
call the thing the FTC goes after is unfair competition.

Borden is the
strongest case for McKenna—the court says there’s no property right; you need
direct competition. This follows from notion that goodwill was limited to the P’s
particular product.That goodwill wasn’t
taken.At the end of the opinion, the
court says there might be some equity jurisdiction if the defendant’s products
were inferior, notwithstanding lack of competition.

Bone also thinks the noncompeting goods expansion was
earlier than McKenna does—could be accommodated easily by expanding goodwill of
product to goodwill of firm, which was logical once firms diversified. Natural
property right superstructure was jettisoned, as a major change, resulting from
legal realists’ attack on natural common law property right. Period of
policy-based functionalism, no longer limited because there was no “property.”Policies were in conflict; needed to be
balanced.But the same 2 policies hung
around in a general sense—protecting consumers and protecting sellers. What’s
changed: mainly, once we start looking at those policies, views about
appropriate balance/weighting differ across different folks.One big thing is the rise of psychological
advertising. Notion that advertising can give you an “identity.”Concerns about monopoly weigh on the other
side.

Multifactor confusion test tries to paper over the
underlying policy conflicts, but that conflict remains.Goodwill gets expanded even further, from
firm goodwill to “inherent” goodwill—popularity/value of the mark itself.

McKenna: doesn’t think we can say about the later 19th
c. cases that the problem was lack of a property right—that was the whole
difference between TM proper and unfair competition—if property were the real
explanation, we wouldn’t have an unfair competition cause of action.Bone says it’s hard to think that competition
is a harm, but McK’s point is that the idea was to protect legitimate exercises of one’s own property
interests, not a stream of consumers—Keeble
v. Hickeringell is about when it’s legitimate to divert ducks—yes by
building your own duck pond, no by firing guns. So deception does naturally
limit the scope of the right.

Unfair competition: Bone has a whole article about the
changing meaning of “goodwill”—so too the meaning of “unfair competition”
changed over time.You can see in the
same era, FTC hearings, child labor, convict-made goods—at the beginning,
somebody suggests that we call that unfair competition. At the beginning of
that period, people say that’s crazy, unfair competition is about passing
off.A few years later, people say “if
my competitor can use child labor in another state, that’s unfair competition,”
and everyone nods—a big shift.

Bone: yes, unfair competition is expansive. But American Washboard is an unfair
competition case that rejects a claim b/c there’s no property. There’s no
uniform view of this in 19th c—there are tensions.It wasn’t stable.

Prof. Chronopolous: English common law allowed tort of
deceit, to be brought by consumer.

Wendy Gordon: One thing that intrigues her was the rise of
rights in marks as such/licensing marks as objects of value.What policies should TM serve, regardless of the history?

Prof. Alexandra Roberts: What did practitioners, producers,
consumers think?Are the judges
similar?Assumption of consistency: can
we make overarching claims about what the goals of TM were?Modern doctrines—no such consistency.

Dogan: relationship between normative/policy considerations
driving doctrine and doctrine itself.Natural rights approach/Lockean labor approach—to its logical
conclusion, that doesn’t have limiting principles either, certainly not limited
to trade diversion.Given that goodwill,
as long as enough and as good is left for others, I should be entitled to
prevent others from appropriating it. Doctrinally, the early cases did tend to
limit rights to trade diversion, but that can’t be equated to a natural rights
theory that is limited to trade diversion as a matter of principle. Relatedly,
in terms of what’s driving expansion of TM in 20th c, the likelihood
of confusion standard is loosey-goosey and enabled expansion, but when we think
about what motivated that expansion, the cases that push the boundaries involve
explanations that aren’t focused on confusion so much as they are focused on a
kind of natural rights impulse—Boston Hockey, Smack Apparel, early initial
interest confusion cases.Courts seem to
be interested in protecting producer’s ability to capture full value associated
with their reputation.Likely confusion
is enabler, but not the real focus of courts that want to protect producers.

Jessica Silbey: What work is the word property doing in the
early cases, in the story Bone is telling?The market has a character and she can see how that moves doctrine, but
not property.In the early cases she
sees impersonation, taking people’s names. Relation to defamation, injury to reputation,
might give us more information about ephemeral harms/kinds of harms that do
produce standing.(Robert Post’s excellent
article about legal models of reputation has a lot of relevance here.)

Michael Meurer: what was the mix between consequentialism
& deontology among judges at this time?

Rebecca Curtin: Both McKenna and Bone commented on relation
between commercial practice and law. But why?What are the consequences of that for principled limits on TM?

Service Jewelry provides jewelry sales and services; from
2010-2014, it promoted its products on a local radio station, WWTN-FM, by
buying ads from the station’s owner, Cumulus.Cumulus sells ad time to many Nashville-area businesses, including
thirteen different jewelry sales and services companies. This action sprang
from a May-July 2014 campaign by Service.

The campaign was prompted by an investigative news report on
WSMV–TV, the Nashville NBC-affiliated television station, which questioned the
manner in which a major competitor of Service Jewelry, Genesis Diamonds, graded
the quality of its diamond products. In response, Service decided to run a
series of on-air ads highlighting the report and directing consumers to Service
Jewelry for assistance if they had concerns regarding the quality of their
diamonds. The spots included pre-recorded advertisements and live radio
endorsements by a WWTN radio personality, DelGiorno.Service Jewelry provided DelGiorno with a
list of talking points about the investigation and about how people might have
been misled or gotten diamonds that were “hugely overgraded,” contrasted to
Service Jewelry’s honesty.

To better understand the context of these talking points, DelGiorno
reviewed a video of the investigative report, but didn’t conduct an independent
investigation into the truth or falsity of the allegations made about Genesis
in the video, and Service didn’t ask him or Cumulus to refrain from using
Genesis’ name.The contract didn’t
impose obligations on content aired by Cumulus outside of paid ads or require Cumulus
to use only language provided by Service Jewelry in the pre-recorded
advertisements and live endorsements.

The first few live endorsements (out of a total of 16) didn’t
mention Genesis by name.Service Jewelry’s
CEO then emailed DelGiorno, writing:

Genesis, once again, is advertising
that “if you find a certified diamond that is similar to ours for a cheaper
price, we will give you ours for free.” We want to take this guy completely
down for this. I would like for you to add to your talking points, something to
the effect, that we would like for anyone to take him up on this offer.

DelGiorno then mentioned Genesis by name in four live
endorsements for Service Jewelry.But
Genesis was another of Cumulus’ advertisers, and a Genesis representative
objected.Cumulus agreed to air
apologies for these endorsements:

We at WTN want to apologize for
some very negative and unfair comments about Genesis [D]iamonds made during a
series of advertisements by our host, Michael DelGiorno. Michael has apologized
to the staff at Genesis for reading a commercial by a competitor which included
some very strong and disparaging comments. We are proud to be associated with
Genesis Diamonds and hold them in the highest regard. Genesis has a strong and
positive reputation …. You don’t get to that level without doing business the
right way, with integrity, superior products and unmatched customer service. We
wish them years of continued success.

DelGiorno’s personal apology was similar, and included the
statement: “To be honest, I did not do my own investigation about Genesis. I
was given some commercial copy by the other jeweler and I relied entirely on
the information provided in doing the commercials.… I should never have made
such serious comments about another business in town, especially without doing
my own homework.” These were on the
station’s website and DelGiorno read his apology 14 times on air.WWTN-FM continued to air other ads for
Service Jewelry that didn’t refer to Genesis; Service Jewelry had an upaid
invoice of nearly $13,000 when it cancelled all its ad business with Cumulus.

Service Jewelry sued for (1) breach of contract; (2)
defamation; (3) violations of the Tennessee Consumer Protection Act (TCPA); and
(4) false advertising under the Lanham Act.As evidence of its damages, it submitted a declaration indicating that a
“[r]eputation for honesty is of primary importance in the jewelry industry,” and
that the apologies “harmed Service Jewelry’s reputation and standing in the
community and in the industry, ... [leading] to actual financial damages,
including significant costs and expenses in attempting to set the record straight.”
It presented no consumer surveys or market research demonstrating consumers’
reaction to the apologies.

False advertising: First, the court found that the
statements in the apologies weren’t literally false.Service Jewelry apparently challenged the
attribution of DelGiorno’s statements about Genesis to Service Jewelry as well
as the labeling of those statements as “untrue,” “unfair,” “derogatory,” and
“disparaging.”The apologies referred to
“another jeweler in town” who gave DelGiorno “some commercial copy” containing
the information on which he relied in commenting about Genesis, and also said
that “a commercial by a competitor” was the subject of the Apologies. “None of
these statements are literally false. The Apologies do not actually attribute
the content in the commercials that were the subject of the Apologies to the
other jeweler referenced”—dubious, but all right, but here’s the bit that goes
against most Lanham Act cases:Also, the
apologies didn’t name Service Jewelry. Listeners would have to remember the
advertiser’s identity from a month prior, and would have to “infer that all
negative statements were provided to Mr. DelGiorno by that jeweler.” Usually,
if there’s one competitor to whom a comparison clearly points, given other
facts about the industry, that’s deemed a reference to that competitor.Plus, DelGiorno’s statement that he “relied
entirely” on Service Jewelry’s information could have multiple meanings—it could
mean that the statements came from a script, or that he based his statements on
information Service Jewelry provided.“Based
on the ambiguity in the language and the degree to which the listener must
integrate statements in the Apologies with prior knowledge of Service Jewelry’s
advertising, the court cannot conclude that the portions of the Apologies that
allegedly attributed Mr. DelGiorno’s statements about Genesis to Service
Jewelry were literally false.”

As for the characterization of the statements about Genesis
as “unfair,” “derogatory,” and “disparaging,” those were unverifiable
statements of opinion. The use of “untrue”
was also too ambiguous, since it was combined with “untrue or unfair.”“A listener could also understand this
language to mean, however, that Mr. DelGiorno simply did not know whether his
statements about Genesis were untrue, whether they were only unfair, or whether
they were both untrue and unfair.” Service
Jewelry didn’t show evidence of actual consumer deception, so it couldn’t
prevail.

Its defamation claim failed for the same reason: there was
no evidence that Service Jewelry’s reputation was injured or that it suffered
damages.Its sole declaration on the
subject contained just the sort of “[c]onclusory statements unadorned with
supporting facts [that] are insufficient to establish a factual dispute that
will defeat summary judgment.” The TCPA bars “unfair or deceptive acts or
practices affecting the conduct of any trade or commerce,” including
“[d]isparaging the goods, services or business of another by false or
misleading representations of fact.” But
it too requires damages, specifically an ascertainable loss of money or
property.

The court also found that the apologies didn’t breach any
contractual term.

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